Is IPG Photonics' Valentin Gapontsev really a billionaire?

Sunday

Sep 29, 2013 at 6:00 AM

By Peter S. Cohan, Wall & Main

If you're looking for a job, you might consider Oxford's IPG Photonics. The company makes fiber lasers that can cut, weld, mark and braze metals and other materials. For those who have bemoaned Worcester's loss of global preeminence in the last few decades, it's clear that IPG is an antidote — and one that appears to be justly rewarding its founder.

As I wrote last December, IPG was founded in 1990 by Valentin Gapontsev. He earned a doctorate at the Moscow Institute of Physics and Technology and started what became IPG Photonics at the age of 52 in 1990. In March, Forbes estimated the value of Mr. Gapontsev, a Worcester resident, and his family's shares of IPG at $1.3 billion.

But IPG disputes Forbes' calculation, while declining to specify Mr. Gapontsev's net worth. The company also turned down a chance to make him available for an interview, saying he was traveling overseas. But am I to believe a billionaire doesn't have a cellphone, access to email?

To understand why IPG believes Forbes is wrong, it helps to realize that Mr. Gapontsev put many of his shares into various trusts in order to lower the taxes due from his heirs when the 75-year-old company leader dies.

Before getting into the details of why IPG disputes Forbes' calculation, it's worth pointing out that IPG claims to have a succession plan in place.

"Dr. Gapontsev continues to be actively involved in the day-to-day management and strategic planning at IPG," wrote IPG Chief Financial Officer Tim Mammen in response to my questions. "IPG has a pool of executive management that has been with the company for periods that range from three to 20 years. The depth of commercial and technical experience is substantial. Succession planning across multiple functions at IPG is being handled by the board of directors. Nothing about these plans has been publicly disclosed."

Many people and entities control shares of IPG, which has a $2.95 billion stock market value. For example, according to IPG's March 2013 proxy statement filed with the Securities and Exchange Commission, big IPG shareholders included Mr. Gapontsev (7,969,993 shares), The Valentin Gapontsev Trust I (15,284,002 shares), and IP Fibre Devices (U.K.) Ltd. (7,354,002 shares).

SEC reporting rules make it difficult to understand which shares Mr. Gapontsev controls. According to Mr. Mammen, "The Trusts have independent trustees, and are not controlled by Dr. Gapontsev. See note 7 to the proxy table which explains that Trust I is deemed to own 15,284,002 shares (which includes all of the IP Fibre Devices shares even though Trust I has only a 48 percent interest in IP Fibre Devices), Trust II is deemed to own 980,000 shares and Trust III is deemed to own 1,000,000 shares. IPG has listed the shares in the proxy according to SEC rules. The SEC rules may require double counting some shares or counting shares over which a person or entity has no economic interest in."

Mr. Mammen did not offer an estimate of Dr. Gapontsev's net worth. As he said, the $1.3 billion estimate "double counts shares owned through the trust, and is wrong because it counts shares that he votes as managing director of IP Fiber Devices, rather than the economic ownership. We are not at liberty to provide confidential information on the net worth of Dr. Gapontsev or his family, as they have assets other than IPG. We can say that the Forbes amount is overstated by about 40 percent, based upon the IPG shares alone, if you eliminate the double counting and include only the shares that he or the family Trusts have an economic interest in."

After reporting 21 percent revenue growth in the second quarter, IPG is hiring. It ran a classified advertisement in this newspaper: "Best. Jobs. Ever. Assemblers. Technicians. Engineers. Apply online, ipgphotonics.com or call (508) 506-2609." And on Sept. 18, IPG was among the companies that were recruiting at WPI — presumably for engineering graduates.

IPG would not forecast how many people it will hire. According to Mr. Mammen, "We don't provide information about the number of people we will hire in the next year. Through June 2013, the net increase in U.S headcount was approximately 80 people. We have hired and plan to hire assemblers, technicians, engineers, finance, sales and other professional and administrative employees. Tax credits we have received require 175 new jobs to be created in Mass."

IPG refused to estimate its growth rate in the next year. But it believes that the wind is at its back.

Mr. Mammen said, "Growth is being driven by continued penetration of materials processing applications such as cutting, welding, drilling, cladding and other additive manufacturing processes, fine processing and marking and engraving across many industries. Future growth will come from these sources, as well as new product introductions such as lasers operating in the Ultra-Violet spectrum, and higher power Green (532 nm) lasers for micro-processing as well as specialized laser systems. In addition, we would hope that the macroeconomic situation in Europe would continue to improve."

Mr. Gapontsev's net worth is at least $929 million, if Mr. Mammen's 40 percent Forbes overstatement comment is correct. And if you include his mysterious other holdings, Mr. Gapontsev's net worth could top $1 billion.